From Liberal hero to unwelcome adviser

For almost two decades Peter Costello has been put on a pedestal by his Liberal colleagues.

They still regard him as Australia’s greatest treasurer, notwithstanding Labor’s Paul Keating and Wayne Swan won global recognition for their efforts in managing the local economy.

Costello’s supporters point to the fact he delivered 10 budget surpluses compared to Keating’s three and Swan’s none.

As well, he paid off the debt the coalition inherited from Keating in 1996.

So when Prime Minister Tony Abbott talks about budget surpluses being in the coalition’s DNA, he’s really talking about Costello’s achievements.

Such status, however, doesn’t mean your advice is welcome now.

And definitely not for a government grappling with its second budget after its first effort proved to be an electoral disaster.

Costello didn’t hold back this week when he offered a critique of the government’s approach to taxation, labelling a discussion paper about a “lower, simpler, fairer” taxation system as a “morbid joke”.

Costello argues rather than “lower, simpler, fairer” taxes, all the recent talk has been about higher, more complicated and less economic ones.

“The government needs to restart the conversation about getting taxes down, not up,” he said.

A diplomatic Abbott acknowledged the “distinguished former treasurer” was perfectly entitled to his view.

Treasurer Joe Hockey was not nearly as sanguine about another armchair critic of the government.

“Everyone is entitled to give free advice,” he said, before adding a sting in the tail: “And, frankly, that’s what it’s worth – it’s free advice.”

Hockey was quick to make the point that Costello had a wealth of mining boom revenue at his finger tips when he cut taxes.

It’s those tax cuts and other giveaways in the latter years of the Howard government that many economists blame for triggering the structural deficit of the commonwealth budget that has burdened Costello’s successors.

Making such generous decisions in the good times comes back to bite you in the less affluent times, they argue.

An analysis the Parliamentary Budget Office published before the 2013 election showed the structural deterioration began as far back as 2002/03, well before Costello left office in 2007.

Abbott believes he’s leading a tax-cutting government, citing abolition of Labor’s carbon and mining taxes.

His government is also promising some sort of tax relief for small business in the May 12 budget but what form that will take is not yet certain.

However the government broke an election promise to slash the corporate tax rate by a uniform 1.5 per cent, justifying the decision by ditching a levy on the nation’s biggest companies to pay for the prime minister’s now dumped paid parental leave scheme.

The two issues that appear to rile Costello most is a flagged bank tax to pay for a government guarantee on deposits and Hockey’s version of the UK’s so-called Google tax to counter profit-shifting by multinational companies.

Business groups are disappointed there won’t be an across-the-board 1.5 per cent cut in the corporate tax rate, arguing that at 30 per cent it is one of the highest in the world.

The government should be at least aiming for 25 per cent, they say.

Business is worried that cutting the corporate tax rate for small business – likely to cover only about of a third of them anyway – will create a two-tier tax system.

“The government risks creating a perverse incentive that discourages business growth and would lead to a dog’s breakfast of structuring arrangements,” Australian Chamber of Commerce and Industry boss Kate Carnell warns.

The 2014 budget was hardly tax-free either. There was a temporary budget repair levy on high-income earners and a return to indexation of the fuel excise.

The latter was a tiny measure in the scheme of things but for some it was the principle of the matter.

Hockey wanted his white paper to be a discussion about the tax system.

He’s certainly achieved that.